The break-even point is to be determined for two methods of production, a manual
ID: 1199065 • Letter: T
Question
The break-even point is to be determined for two methods of production, a manual method and an automated method, which will be used ,o make a new product for your firm. The manual method cost of $60 000, annual maintenance costs of S 2.000. service life of 6 years, and requires two operators at $ 12 00/hour each. Together, they produce at a rate of 40 parts-hour. The ^ energy ot .'0 kW when running and the cost of electricity is S 0.10/VWh. Assume a labor overhead rate is 30% and the machine overhead rate is 20%. . The automated method has an initial cost of S 200.000. an 8-year and annual maintenance costs of S 5.000. 50% of an operator operate the machine. In addition, the machine consumes 60 kW The production rate for this automated machine is parts o 35% and the machine overhead rate is 25%. due to Use the machine overhead rate when calculating the variable return Determine the cost break-even point for the two an annual The marketing team estimates that there exists, at the units for this product. Based on this information, Once you have selected the right machine the competitive in the market, they can charge S 1 breakeven annual quantity will need to be ma required.Explanation / Answer
Break even point is the point at which the gains equal to the losses .It is define when an investment will generate a positive return. It can be applied to a product, an investment or the entire company's operations and also used in the operations and is also used in the options world.It is a useful toolto study the relationship between fixed costs, variable cost and returns.
A) In two methods, first method is proper break even point beacause in menual method labour overhead rate is 30% and machine overhead rate is 20%, but in aoutomatic method labor overhead rate is 35% and machine overhead rate is 25%.so when return are 20% Menual method is better.
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